Ldr Plc (UK company) must make a payment of US $450,000 in 3 months’ time. The following information is available: Spot & Forward rates (Bid-Ask): Spot rate: $1.7000 - $1.70403-month forward rate: $1.6902 - $1.69446-month forward rate: $1.6764 - $1.6809Money market rates: Borrow (annual rates) Deposit (annuak rates) US$ 6.5% 5% £ 7.5% 6% 1. Using appropriate calculations, advise Ldr Plc as to whether a forward contract hedge or money market hedge should be undertaken.2. Discuss the practical ways in which a UK exporter might manage its foreign exchange risk.
Ldr Plc (UK company) must make a payment of US $450,000 in 3 months’ time. The following information is available: Spot & Forward rates (Bid-Ask): Spot rate: $1.7000 - $1.70403-month forward rate: $1.6902 - $1.69446-month forward rate: $1.6764 - $1.6809Money market rates: Borrow (annual rates) Deposit (annuak rates) US$ 6.5% 5% £ 7.5% 6% 1. Using appropriate calculations, advise Ldr Plc as to whether a forward contract hedge or money market hedge should be undertaken.2. Discuss the practical ways in which a UK exporter might manage its foreign exchange risk.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Ldr Plc (UK company) must make a payment of US $450,000 in 3 months’ time. The following information is available:
Spot & Forward rates (Bid-Ask):
Spot rate: $1.7000 - $1.7040
3-month forward rate: $1.6902 - $1.6944
6-month forward rate: $1.6764 - $1.6809
| Borrow (annual rates) | Deposit (annuak rates) | |
| US$ | 6.5% | 5% |
| £ | 7.5% | 6% |
1. Using appropriate calculations, advise Ldr Plc as to whether a forward contract hedge or money market hedge should be undertaken.
2. Discuss the practical ways in which a UK exporter might manage its foreign exchange risk.
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